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What is credit? Ability to borrow money or obtain goods by paying little or no money at the time of purchase. Your promise to pay the original cost later.

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Presentation on theme: "What is credit? Ability to borrow money or obtain goods by paying little or no money at the time of purchase. Your promise to pay the original cost later."— Presentation transcript:

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2 What is credit? Ability to borrow money or obtain goods by paying little or no money at the time of purchase. Your promise to pay the original cost later or over time plus interest.

3 Why do you need credit? Buying a home Getting a job Getting phone service Renting an apartment Finance an automobile Spreading out payments for expensive items Qualify for insurance Get a loan Obtain a credit card

4 Types of Credit Installment Credit Fixed number of monthly payments Car loans, mortgages Revolving Credit Short-term, open-ended Assigned credit limit Available credit fluctuates as you make purchases & payments Option to make full or partial payment HELOCs, credit cards Credit, charge & debit cards Visa, MasterCard, Discover Affinity cards Rewards cards Secured cards Retail and gas cards Stored value (prepaid) cards Charge cards Debit cards

5 Food for Thought In 2007, credit card customers who revolved their debt (didnt pay the balance in full each month) paid $18.1 billion in penalty fees to credit card companies. Source: Dont Get Clobbered By Credit Cards, by Gary Weiss

6 Good vs. bad credit Good credit Reliable in paying bills Companies willing to extend credit Bad credit Unreliable in paying bills Bills are paid late Debts are abandoned Filed for bankruptcy

7 Borrowers responsibilities Borrow only what you can repay Read and understand the credit contract Pay debts promptly Notify creditor if you cannot meet payments Report lost or stolen credit cards promptly

8 How can I get credit? Establish an account Ask a local company Find a co-signer Get a secured credit card Use it responsibly for a year or two Pay all bills promptly Dont bounce checks

9 Why is credit denied? No credit history Too much outstanding credit Credit not handled responsibly in the past Victim of fraud

10 What is a credit report? Record of your loans, credit cards, payments and outstanding debts Lenders report your credit usage to companies called Credit Reporting Bureaus Equifax TransUnion Experian

11 Details on your credit report Your name, birthdate, past addresses, employer Credit accounts Company name, account number, date opened, months reviewed, date of last activity, high credit, terms, balance, past due, status, date reported, previous payment history Companies that requested your credit file inquiries Public information Bankruptcy Court judgments against you Past due child support payments Property tax liens

12 Who can get a copy of the report? You Only those who can prove a legitimate need Banks Credit card companies Landlords or real estate companies Employers Insurance agencies

13 Credit Scores How your score can affect you: Interest Rates If your rate goes up on 1 card it can go up on another Insurance Rates Some Employers Use It When Hiring

14 An Example On a $225,000 home: 6% Interest Rate 30-year fixed = $1348/mo 5% Interest Rate 30-year fixed = $1207/mo. $141.14/mo. difference $50,810 over 30 yrs

15 How Your Score Is Calculated FICO® scores are calculated based on your rating in five general categories: 1. Payment History 2. Amounts Owed 3. Length Of Credit History 4. New Credit 5. Types Of Credit Used

16 Whats A Good Score? FICO Scores Range From 300 – 850 In the eyes of most lenders, FICO credit scores above 700 (750) are very good. Recent changes in the economy have changed what lenders as a very good score

17 Improving Credit Scores Pay Bills On Time (Get current, stay current) Pay Off Debt – Dont Move It Around Dont Close Unused Credit Cards As A Short-Term Strategy To Raise Your Score Dont Open New Credit You Dont Need. Repair Errors (Outstanding Debts You Paid) Pay Down Balances To 20-30% Of Credit If You Have 1 Or 2 Old Cards You Haven't Used Put A Little On The Card And Then Pay It Off Do This About 1 Every 6 Months

18 What to do with your credit report... Once you have your credit report: Check it carefully. Look for accounts that might not be yours. Verify all credit limits/balances. Make sure accounts youve closed say Closed at consumers request. You have the right to: See what is in your report Have an accurate report Have mistakes corrected Tell your side of the story Know who has seen your report

19 Filing a dispute Fill out the form/letter enclosed with your bureau report; and return back to the bureau Bureau must respond in days If after hearing from the bureau, you disagree with its response you may add up to a 100-word statement

20 Reporting credit fraud You may need to fill out a police report. Credit reporting agencies have a special number to call if you are a victim of fraud.

21 Not All Debt Is Evil Credit is a valuable tool, yet many people misuse and overuse it.

22 Using Credit Wisely Know your credit limit and dont exceed it Charge only as much as you can repay Pay more than the minimum, if possible Pay by your due date (and time!) Use a debit card, not a credit card, to get cash Dont accumulate too much debt Avoid penalty fees and rates Consider optional fee-based services carefully Contact a credit counselor (www.nfcc.org or

23 Warning Signs: Too Much Debt Making only the minimum payment Maxing or nearly maxing out credit cards Not knowing how much is owed Using credit cards to purchase items that used to be purchased with cash Paying off one card with another card Phone calls or letters from creditors

24 Lowering Your Debt Ask Your Credit Card Company To Lower Your Interest Rate If Your Card Company Wont Lower – Shop For A Lower Rate Card Set up a tight budget and stick to it. Find ways to save money – America SavesAmerica Saves Set realistic goals

25 If You Are In Trouble Stop Borrowing! Contact Your Creditors Review the Fair Debt Collection Act Speak with a credit counselor National Foundation for Credit Counseling Debt Management Plans

26 Resources For Students DFIs Right on the Money – Financial Know-How For College Students FTC Credit Web Site AICPA College/ College/ Bad Credit Hotel


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